Blog

California’s Crackdown on Nonprofits

Nonprofits should take note that there is a new sheriff in town. California Attorney General Xavier Becerra is cracking down on nonprofits that are breaking the law.

Becerra’s public statements indicate that he will bring stronger enforcement against charities. So far, he has. Since Becerra became Attorney General, the State of California has initiated litigation against two nonprofits alleged to be engaging in illegal acts. The Law Firm for Non-Profits has also seen an increase in audits of charities.

As Attorney General, Becerra has sweeping authority to enforce rules against nonprofits that are breaking the law. During a press conference on his 100th day in office, Becerra said that he is enforcing the law against organizations falsely claiming to be supporting veterans.

Becerra was presumably referring to a recent lawsuit brought by the State of California against two nonprofits run by one family. One of the nonprofits, the Wounded Warrior Support Group, was formed to support wounded veterans and their families. The other organization, Central Coast Equine Rescue and Retirement, claims to rescue abused and neglected horses. The lawsuit claims that neither organization did anything to support those causes. According to the complaint, the officers and directors of the organizations used illegal raffles to raise funds and then spent the money on themselves at restaurants, Victoria’s Secret, Nordstrom, and Macy’s.

The Attorney General names the two nonprofits and their officers and directors as defendants. Among the litany of allegations in the Attorney General’s complaint are claims of mismanagement, misapplication of charitable assets, fraudulent abuse of corporate powers, persistent breach of fiduciary duties, and failure to carry out the charitable purposes of the organizations.

The State of California is seeking to remove the officers and directors of the two organizations, dissolve the two organizations, and recover hundreds of thousands of dollars.

Also in Becerra’s cross-hairs: political nonprofit organizations that use “benevolent” names to lure in donors who do not realize their funds are going to support undisclosed political agendas. According to the AP, Becerra plans to go after such organizations, stating, “The last thing I think most people want to find out is that all these groups that are getting tax breaks because they are not-for-profit are actually going out there and influencing our political system.”

If the lawsuit and Becerra’s public statements about political nonprofits are any indication, there is reason to believe that Becerra will be tough on all nonprofits. Indeed, nonprofits engaging in any kind of deceptive or illegal behavior (including self-dealing) should not expect to slip through the cracks in California.